I happened to have a look at the gold prices today. It is almost the same as it was 5 years before. Take for example, HDFC Gold ETF. Current price is around Rs 2800 per gram. The graph below (from www.valueresearchonline.com) shows the gold prices (in appreciation percentage) for the last five years - Nov 2011 to Nov 2016.
So, for someone who had invested exactly 5 years before, the current result is same as keeping the cash under the mattress. Except for the roller-coaster ride which the gold investor experienced in the said period (only, if he were to watch the prices constantly). The price went up to Rs 3160 per gram in Sep 2012 and dropped to Rs 2470 per gram in June 2013 and immediately in 2 months went up to Rs 3075 per gm in Aug 2013 and dropped to Rs 2350 per gram in December 2015. Now, back at Rs 2800 as it was in Nov 2011.
Five years is a sufficiently long time, and except for the volatility that gold offered, it has not generated any wealth. It seems as such there is no use in accumulating the metal. The price is driven by consumption (majorly accumulation in the form of jewels), supply and demand. The returns from gold is only through appreciation as it is not an income generating asset. You buy with the only hope that it will appreciate. People still consider it as an asset. At best, it can be considered as an illiquid cash (oxymoron!) Gold, for most people is an expensive ornament and serves no further.
Of course, the sample size (in this case, it is just one 5 year period), the period taken, can all be in contention. But overall, gold prices can stay at par with inflation adjusted for currency exchange rates. Not any more.
But, there have been business that thrive on gold - gold jewellers and gold loan companies. For every gram sold in the form of jewelry, the owners make roughly 15% as making charges. And if an ornament is bought, later melted and remade after a few years - the jewellers make additional making charges on the same gold sold. It does not matter whether it is the same jeweller or different. If you consider all jewellers as one group, you bought from the group and again gave back to them to be melted and remade a few years later, giving them double making charges on the same gold.
The gold loan companies on the other hand convert the "illiquid cash" to "liquid cash" at a price, charging huge interest rates, at the same time having a right on the gold which is pledged. They take a margin of around 30% to account for volatility. By the way, in the said period there have been only one instance where the price had gone down by around 25%. Better off actually selling and buying back later, there by you pay an overall 15% extra making charges while buying again, instead of repeated interest payments at 20% while not having the right on the gold as well.
So, for someone who had invested exactly 5 years before, the current result is same as keeping the cash under the mattress. Except for the roller-coaster ride which the gold investor experienced in the said period (only, if he were to watch the prices constantly). The price went up to Rs 3160 per gram in Sep 2012 and dropped to Rs 2470 per gram in June 2013 and immediately in 2 months went up to Rs 3075 per gm in Aug 2013 and dropped to Rs 2350 per gram in December 2015. Now, back at Rs 2800 as it was in Nov 2011.
Five years is a sufficiently long time, and except for the volatility that gold offered, it has not generated any wealth. It seems as such there is no use in accumulating the metal. The price is driven by consumption (majorly accumulation in the form of jewels), supply and demand. The returns from gold is only through appreciation as it is not an income generating asset. You buy with the only hope that it will appreciate. People still consider it as an asset. At best, it can be considered as an illiquid cash (oxymoron!) Gold, for most people is an expensive ornament and serves no further.
Of course, the sample size (in this case, it is just one 5 year period), the period taken, can all be in contention. But overall, gold prices can stay at par with inflation adjusted for currency exchange rates. Not any more.
But, there have been business that thrive on gold - gold jewellers and gold loan companies. For every gram sold in the form of jewelry, the owners make roughly 15% as making charges. And if an ornament is bought, later melted and remade after a few years - the jewellers make additional making charges on the same gold sold. It does not matter whether it is the same jeweller or different. If you consider all jewellers as one group, you bought from the group and again gave back to them to be melted and remade a few years later, giving them double making charges on the same gold.
The gold loan companies on the other hand convert the "illiquid cash" to "liquid cash" at a price, charging huge interest rates, at the same time having a right on the gold which is pledged. They take a margin of around 30% to account for volatility. By the way, in the said period there have been only one instance where the price had gone down by around 25%. Better off actually selling and buying back later, there by you pay an overall 15% extra making charges while buying again, instead of repeated interest payments at 20% while not having the right on the gold as well.
No comments:
Post a Comment